Context:

The Indian government has announced the discontinuation of the Medium-Term (5-7 years) and Long-Term (12-15 years) Government Deposits under the Gold Monetisation Scheme (GMS) effective March 26, 2025. This decision follows a comprehensive review of the scheme's performance and evolving market conditions. ​

Background of the Gold Monetisation Scheme

Launched in November 2015, the GMS aimed to mobilize idle gold held by households and institutions, integrating it into the formal economy to reduce reliance on gold imports and address the current account deficit.

The scheme allowed individuals and entities to deposit gold with banks, earning interest over specified durations. ​

Structure of the Scheme

The GMS offered three deposit tenures:​

1.   Short-Term Bank Deposits (STBD): 1-3 years​

2.   Medium-Term Government Deposits (MTGD): 5-7 years​

3.   Long-Term Government Deposits (LTGD): 12-15 years​

While banks determined interest rates for STBDs based on prevailing market conditions, the government set fixed interest rates for MTGD and LTGD at 2.25% and 2.5% per annum, respectively. ​

Reasons for Discontinuation

The Ministry of Finance cited the scheme's performance and changing market dynamics as primary reasons for discontinuing the medium and long-term deposit components. Notably, gold prices have surged by over 15% this year, influenced by geopolitical tensions and economic uncertainties, impacting the scheme's viability.

​Implications for Depositors

Deposits made under the MTGD and LTGD categories before March 26, 2025, will continue until their respective maturities. However, no new deposits will be accepted under these categories from the effective date. The Reserve Bank of India (RBI) is expected to release detailed guidelines to address operational aspects and ensure a smooth transition for existing depositors. ​

Continuation of Short-Term Deposits

Short-Term Bank Deposits will remain available at the discretion of individual banks, which will assess their commercial viability. This continuation allows depositors to earn interest on their gold holdings over shorter durations, with interest rates determined by the banks based on current market conditions. ​

Conclusion

The discontinuation of the medium and long-term components of the Gold Monetisation Scheme reflects the government's adaptive approach to prevailing economic conditions and market trends. While this move aims to mitigate risks associated with fluctuating gold prices and reduce future governmental obligations, it underscores the importance of continually evaluating financial schemes to ensure their effectiveness and alignment with national economic objectives.